Daniel Clevenger – IPO, Then What?http://ipo.foleyhoag.com
Foley Hoag LLPMon, 11 Feb 2019 15:08:23 +0000en-UShourly1https://wordpress.org/?v=4.9.9And the beat goes on . . . Nasdaq comments on the shutdownhttp://ipo.foleyhoag.com/2019/01/25/and-the-beat-goes-on-nasdaq-comments-on-the-shutdown/
http://ipo.foleyhoag.com/2019/01/25/and-the-beat-goes-on-nasdaq-comments-on-the-shutdown/#respondFri, 25 Jan 2019 23:15:58 +0000https://ipo.foleyhoag.com/?p=292Proving that where there’s a will, there’s a way, the U.S. capital markets continue to push forward as the political stalemate at the heart of the federal government shutdown continues. A temporary solution to the shutdown appears to be at hand but in the spirit of “then what?” we want to keep you up to date. Acknowledging the obstacles created by its inability to review registration statements and declare them effective during the course of the shutdown,… More]]>Proving that where there’s a will, there’s a way, the U.S. capital markets continue to push forward as the political stalemate at the heart of the federal government shutdown continues. A temporary solution to the shutdown appears to be at hand but in the spirit of “then what?” we want to keep you up to date. Acknowledging the obstacles created by its inability to review registration statements and declare them effective during the course of the shutdown, the SEC noted that it would not object to issuers omitting or deleting the traditional delaying amendment language from their registration statements so that they will become effective in accordance with Section 8(a) of the Securities Act. While a number of already-listed issuers have done just that, questions remained as to whether the major stock exchanges would permit the listing of a company conducting its initial public offering in that way. We got our answer on January 24 when Nasdaq issued FAQs on the subject.

According to the FAQs, Nasdaq will generally agree to list a company that otherwise meets its listing standards and cleared all SEC comments to its IPO registration statement prior to the beginning of the shutdown. Conversely, Nasdaq will generally not agree to list a company that hasn’t yet engaged in the SEC comment process. Nasdaq stated that in “limited situations,” it would consider listing a company that meets its listing standards and has substantially completed the comment process with the SEC, but still has some outstanding comments remaining. In that case, Nasdaq will consider the nature of the outstanding comments and whether the company has addressed all of the SEC’s concerns raised by those comments; in addition, Nasdaq may ask the company’s auditors and counsel to make representations regarding the company’s responses to the comments.

Proceeding in this manner will raise a number of challenges for companies and bankers, not the least of which is the fact that the final offering price must be included in the prospectus (as opposed to the customary price range) and will therefore be fixed 20 days before confirmations of sales can begin.

]]>http://ipo.foleyhoag.com/2019/01/25/and-the-beat-goes-on-nasdaq-comments-on-the-shutdown/feed/02019 10-K and Proxy Season: A couple of remindershttp://ipo.foleyhoag.com/2019/01/14/2019-10-k-and-proxy-season-a-couple-of-reminders/
http://ipo.foleyhoag.com/2019/01/14/2019-10-k-and-proxy-season-a-couple-of-reminders/#respondMon, 14 Jan 2019 19:36:55 +0000https://ipo.foleyhoag.com/?p=283During this ever-lengthening government shutdown, it’s easy to forget that 2018 was a big year for changes to the SEC’s disclosure regime, which companies will need to keep in mind as they prepare their 2019 10-Ks and proxy statements. In particular, in August, the SEC adopted its Disclosure Updates and Simplification rules, which eliminated some duplicative, outdated and overlapping disclosure requirements (see our post here), and in June it adopted amendments to the smaller reporting company definition,… More]]>During this ever-lengthening government shutdown, it’s easy to forget that 2018 was a big year for changes to the SEC’s disclosure regime, which companies will need to keep in mind as they prepare their 2019 10-Ks and proxy statements. In particular, in August, the SEC adopted its Disclosure Updates and Simplification rules, which eliminated some duplicative, outdated and overlapping disclosure requirements (see our post here), and in June it adopted amendments to the smaller reporting company definition, which will permit more companies to take advantage of the scaled disclosures available to smaller reporting companies (see our post here). Companies meeting the new smaller reporting company threshold need to keep in mind that the definition of accelerated filer was not changed, so they may find themselves in position to take advantage of the smaller reporting company scaled disclosure requirements while still subject to accelerated filer deadlines and (if not an emerging growth company) the requirement to provide auditor attestation for internal control over financial reporting.
]]>http://ipo.foleyhoag.com/2019/01/14/2019-10-k-and-proxy-season-a-couple-of-reminders/feed/0Yes, they really mean it: the SEC brings another enforcement action relating to the presentation of non-GAAP financial measureshttp://ipo.foleyhoag.com/2019/01/11/yes-they-really-mean-it-the-sec-brings-another-enforcement-action-relating-to-the-presentation-of-non-gaap-financial-measures/
http://ipo.foleyhoag.com/2019/01/11/yes-they-really-mean-it-the-sec-brings-another-enforcement-action-relating-to-the-presentation-of-non-gaap-financial-measures/#respondFri, 11 Jan 2019 16:37:26 +0000https://ipo.foleyhoag.com/?p=281This past Boxing Day, the SEC delivered another reminder that it remains intensely focused on public companies’ disclosure of non-GAAP financial measures. In an agreed cease-and-desist order released on December 26, 2018, ADT Inc. (ADT) agreed to pay a $100,000 fine to settle an accusation that it failed to comply with Item 10(e) of Regulation S-K. Item 10(e) requires, among other things, that any disclosure of a non-GAAP financial measure in an SEC filing must be accompanied by disclosure of the most directly comparable GAAP financial measure with equal or greater prominence. … More]]>This past Boxing Day, the SEC delivered another reminder that it remains intensely focused on public companies’ disclosure of non-GAAP financial measures. In an agreed cease-and-desist order released on December 26, 2018, ADT Inc. (ADT) agreed to pay a $100,000 fine to settle an accusation that it failed to comply with Item 10(e) of Regulation S-K. Item 10(e) requires, among other things, that any disclosure of a non-GAAP financial measure in an SEC filing must be accompanied by disclosure of the most directly comparable GAAP financial measure with equal or greater prominence. ADT violated this requirement in its 2017 full-year earnings release and first quarter 2018 earnings release by presenting its adjusted EBITDA and (in the case of the first quarter 2018 release) other non-GAAP financial measures in the headlines and highlights sections of those releases while relegating the comparable GAAP measures to the body of the release.

The past several years have seen renewed focus by the SEC on companies’ use of non-GAAP financial measures in their public statements. In May 2016, the SEC staff issued interpretive guidance relating to the use of non-GAAP financial measures, which clearly cautioned companies that they could run afoul of Item 10(e) if they were to present non-GAAP measures in an earnings release headline or caption without preceding it with the comparable GAAP measure.

The ADT settlement should serve as a reminder that the SEC views compliance with its non-GAAP disclosure rules as an important priority and that it will monitor and vigorously enforce those rules.

]]>http://ipo.foleyhoag.com/2019/01/11/yes-they-really-mean-it-the-sec-brings-another-enforcement-action-relating-to-the-presentation-of-non-gaap-financial-measures/feed/0Better late than never? New Disclosure Requirements for Hedging Policieshttp://ipo.foleyhoag.com/2019/01/11/better-late-than-never-new-disclosure-requirements-for-hedging-policies/
http://ipo.foleyhoag.com/2019/01/11/better-late-than-never-new-disclosure-requirements-for-hedging-policies/#respondFri, 11 Jan 2019 16:24:11 +0000https://ipo.foleyhoag.com/?p=278The Securities and Exchange Commission has finally adopted new rules that will require public companies to include in proxy statements for their annual meetings a description of their hedging policies and practices applicable to employees and directors. These rules were called for by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 but weren’t proposed until February 2015. The new rules will apply to proxy and information statements with respect to the election of directors during fiscal years beginning on or after July 1,… More]]>The Securities and Exchange Commission has finally adopted new rules that will require public companies to include in proxy statements for their annual meetings a description of their hedging policies and practices applicable to employees and directors. These rules were called for by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 but weren’t proposed until February 2015. The new rules will apply to proxy and information statements with respect to the election of directors during fiscal years beginning on or after July 1, 2019 (or July 1, 2020 for smaller reporting companies and emerging growth companies).

The required disclosure must include a description of all policies and practices, which need not be in writing, regarding the ability of the company’s employees or directors to purchase financial instruments or engage in other transactions to hedge or offset a decrease in the market value of the company’s securities granted to or held by its employees or directors. If a company does not have any established policy or practice for these transactions, it will be required to disclose that fact and note that they are permitted. While companies other than emerging growth companies and smaller reporting companies previously had to report this information in the Compensation Discussion & Analysis section of their proxy statements as it applied to their named executive officers, the new rules are applicable to all reporting companies and expand the scope of the disclosure to all employees and directors.

Though the Commission was clear in its adopting release that these rules do not require a company to adopt any particular policy or practice with respect to hedging by its employees and directors, company boards should carefully consider how the investment community is likely to perceive their current policies and practices (or lack thereof) and decide whether to implement any revisions before the new disclosure regime comes into effect.

]]>http://ipo.foleyhoag.com/2019/01/11/better-late-than-never-new-disclosure-requirements-for-hedging-policies/feed/0SEC approves higher thresholds for smaller reporting companieshttp://ipo.foleyhoag.com/2018/06/29/sec-approves-higher-thresholds-for-smaller-reporting-companies/
http://ipo.foleyhoag.com/2018/06/29/sec-approves-higher-thresholds-for-smaller-reporting-companies/#respondFri, 29 Jun 2018 20:55:20 +0000http://ipo.foleyhoag.com/?p=226 Yesterday, the Securities and Exchange Commission approved changes to the definition of a “smaller reporting company,” or SRC, that will significantly increase the availability of the less burdensome, scaled disclosure requirements applicable to companies qualifying as SRCs . The amendments increase the public float threshold for qualification as an SRC from less than $75 million to less than $250 million, in each case regardless of the company’s revenues. In addition,… More]]> Yesterday, the Securities and Exchange Commission approved changes to the definition of a “smaller reporting company,” or SRC, that will significantly increase the availability of the less burdensome, scaled disclosure requirements applicable to companies qualifying as SRCs . The amendments increase the public float threshold for qualification as an SRC from less than $75 million to less than $250 million, in each case regardless of the company’s revenues. In addition, the SEC expanded the provision that permitted companies with no public float and annual revenues of less than $50 million to qualify as an SRC to include reporting companies with no public float or a public float of less than $700 million, so long as they had less than $100 million in revenues in their most recently completed fiscal year. We expect the amendments to be published in the Federal Register in the coming days, and they will become effective 60 days after that.

The SEC’s scaled disclosure accommodations provide a significant benefit to SRCs by permitting them to omit or narrow certain disclosures that would otherwise be required in their SEC filings. Examples include streamlined executive compensation disclosure and reduced financial statement and corresponding MD&A requirements.

Previously all SRCs met the definition of “non-accelerated filers” and were, therefore, exempt from the auditor attestation requirements for internal control over financial reporting imposed by Section 404(b) of the Sarbanes-Oxley Act and eligible to take advantage of extended annual and quarterly reporting deadlines. Notably, in its actions yesterday the SEC declined to extend the definition of non-accelerated filer to cover companies that will now qualify as smaller reporting companies under the new standards, but instead retained the current threshold for accelerated filers–public float of between $75 million and $700 million measured as of the last day of the second fiscal quarter of the company’s most recently completed fiscal year. As a consequence, some companies that will now qualify as SRCs will remain accelerated filers that will be required to provide auditor attestation reports on internal control over financial reporting and meet the shorter accelerated filer reporting deadlines. Jay Clayton, the Chairman of the SEC, has directed the SEC staff to make recommendations to the Commissioners with respect to possible changes to the accelerated filer definition with the goal of reducing the number of companies that qualify as accelerated filers; there is, however, no deadline for further action on that front.

In these transactions, public companies routinely obtain fairness opinions from an investment bank regarding the value of the consideration to be paid to shareholders, and the fairness opinions normally rely on financial projections provided by the company. These projections are often prepared in a way that varies from GAAP and,… More

]]>This week the SEC staff expanded relief for the disclosure of non-GAAP financial forecasts used in business combinations.

In these transactions, public companies routinely obtain fairness opinions from an investment bank regarding the value of the consideration to be paid to shareholders, and the fairness opinions normally rely on financial projections provided by the company. These projections are often prepared in a way that varies from GAAP and, as a result, one or more of the figures included in the projections may constitute “non-GAAP financial measures” under SEC rules. The disclosure of non-GAAP financial measures in an SEC filing ordinarily triggers a requirement (under Item 10(e) of Regulation S-K) to disclose the most directly comparable measure calculated under GAAP, provide a numerical reconciliation of the two numbers and make other disclosures about the company’s use of the non-GAAP measures. These disclosure requirements can sometimes be onerous, at times to such an extent that companies determine that the burden of the required disclosures exceeds the anticipated benefit of disclosing the non-GAAP financial measures.

In the context of a business combination, however, companies are often compelled by state law to provide extensive disclosure about the fairness opinion and other factors considered by the board of directors in making its recommendation to shareholders to approve the transaction. These disclosures include a detailed description of the financial analyses performed by the investment bank, such as a discounted cash flow analysis based on the company’s financial projections. Under case law interpreting the Delaware General Corporation Law, companies are well advised to disclose the financial projections given to the investment bank. When those projections include non-GAAP information, companies would ordinarily have to comply with the SEC’s rules regarding non-GAAP disclosures.

Last October, the staff clarified that, when public companies disclose financial forecasts in connection with a business combination transaction in order to comply with state law, they do not have to provide the additional disclosures that would otherwise be required by the non-GAAP rules. (Non-GAAP C&DI 101.01) In the staff’s view, these non-GAAP figures benefit from Item 10(e)(5) of Regulation S-K, which excludes from the definition of non-GAAP financial measure any measure “required to be disclosed by GAAP, Commission rules, or a system of regulation of a government or governmental authority or self-regulatory organization that is applicable to the” company. However, this relief was made available only when the forecast is provided to a financial advisor for the purpose of rendering an opinion material to the transaction and the forecast is being disclosed in order to comply with SEC rules or state or foreign law regarding disclosure of the financial advisor’s work. When this guidance was issued, some practitioners questioned whether the relief was available if the same non-GAAP forecasts were provided to others, such as bidders or the company’s board of directors.

This week, the SEC staff sensibly clarified that the relief remains available even if the non-GAAP forecasts are also provided to the company’s board of directors. (Non-GAAP C&DI 101.02) Note, however, that the relief would not be available for other non-GAAP forecasts provided only to the board and not to the financial advisor, such as alternative forecasts based on different assumptions.

At the same time, the SEC staff also clarified that companies generally need not comply with the non-GAAP rules when disclosing non-GAAP forecasts provided to bidders in a business combination transaction. (Non-GAAP C&DI 101.03) In this case, the relief is available when such disclosures are material and are made in order to comply with the antifraud or other liability provisions of the federal securities laws, which would also appear to fall under Item 10(e)(5) of Regulation S-K.

The rationale for this exclusion is rather broad, and some companies may try to drive the proverbial truck through it. It will be interesting to see how far the SEC staff will allow companies to push this exclusion, since most disclosures – including non-GAAP disclosures – are arguably made in order to avoid misleading investors.

]]>http://ipo.foleyhoag.com/2018/04/06/sec-staff-expands-non-gaap-relief-for-business-combinations/feed/0SEC Provides Hurricane Reliefhttp://ipo.foleyhoag.com/2017/09/29/sec-provides-hurricane-relief/
http://ipo.foleyhoag.com/2017/09/29/sec-provides-hurricane-relief/#respondFri, 29 Sep 2017 13:54:16 +0000http://ipothenwhat.foleyhoag.wpengine.com/?p=125On September 28, 2017, the Securities and Exchange Commission announced regulatory relief for a broad class of companies and others affected by Hurricane Harvey, Hurricane Irma, and Hurricane Maria. The SEC staff also indicated that it would be responsive to other issues that these parties may face if brought to the staff’s attention on a case-by-case basis.

The SEC issued an exemptive order that conditionally exempts affected persons from certain requirements of the federal securities laws for a period following the hurricanes. … More

]]>On September 28, 2017, the Securities and Exchange Commission announced regulatory relief for a broad class of companies and others affected by Hurricane Harvey, Hurricane Irma, and Hurricane Maria. The SEC staff also indicated that it would be responsive to other issues that these parties may face if brought to the staff’s attention on a case-by-case basis.

The SEC issued an exemptive order that conditionally exempts affected persons from certain requirements of the federal securities laws for a period following the hurricanes. This relief includes additional time for public companies to file Exchange Act reports and provides that filings made in accordance with the order will be deemed current and timely for purposes of Form S‑3 eligibility, Form S‑8 eligibility and the current public information requirements of Rule 144(c).

The time periods for relief are as follows:

With respect to those persons or entities affected by Hurricane Harvey, for the period from and including August 25, 2017 to October 6, 2017, all reports, schedules or forms must be filed on or before October 10, 2017;

With respect to those persons or entities affected by Hurricane Irma, for the period from and including September 6, 2017 to October 18, 2017, all reports, schedules or forms must be filed on or before October 19, 2017; and

With respect to those persons or entities affected by Hurricane Maria, for the period from and including September 20, 2017 to November 1, 2017, all reports, schedules or forms must be filed on or before November 2, 2017.

The Commission also adopted interim final temporary rules that extend the filing deadlines for specified reports and forms that companies must file pursuant to Regulation Crowdfunding and Regulation A.

]]>http://ipo.foleyhoag.com/2017/09/29/sec-provides-hurricane-relief/feed/0SEC Staff Clarifies Registration Statement Relief for Omitting Financial Informationhttp://ipo.foleyhoag.com/2017/08/28/sec-staff-clarifies-registration-statement-relief-for-omitting-financial-information/
http://ipo.foleyhoag.com/2017/08/28/sec-staff-clarifies-registration-statement-relief-for-omitting-financial-information/#respondMon, 28 Aug 2017 18:37:59 +0000http://ipothenwhat.foleyhoag.wpengine.com/?p=111On August 17, 2017, the SEC staff issued two new C&DIs (Securities Act Forms 101.04 and 101.05) to clarify the financial information that emerging growth companies (EGCs) and other issuers can omit from confidentially submitted draft registration statements. An issuer can omit interim financial information if it anticipates that the registration statement will not, at the time of the contemplated offering (or, in the case of non-EGCs,… More]]>On August 17, 2017, the SEC staff issued two new C&DIs (Securities Act Forms 101.04 and 101.05) to clarify the financial information that emerging growth companies (EGCs) and other issuers can omit from confidentially submitted draft registration statements. An issuer can omit interim financial information if it anticipates that the registration statement will not, at the time of the contemplated offering (or, in the case of non-EGCs, at the time of public filing), require separate interim financial statements. For example, a draft registration statement submitted by a calendar-year issuer in November 2017 would ordinarily be required to include financial information for the nine months ended September 30, 2016 and 2017. If the offering is anticipated to occur in January 2018, the issuer could not omit that information, since a registration statement for an offering at that time would be required to include the interim information. In contrast, if the offering (or, in the case of non-EGCs, the public filing) is anticipated to occur in April 2018, the issuer could omit the interim financial information, since a registration statement for an offering in April would instead be required to include audited financial statements for the full calendar years 2016 and 2017. For non-EGCs, it is important to note that it is the date of the first public filing that determines what financial statements are required, rather than the date of the offering (e.g., the date of the red herring to be used in the roadshow).

The guidance reaffirms the staff’s position that drafts must nonetheless include required financial information for interim periods that are anticipated to be superseded by longer interim periods for the same year. For example, an issuer submitting a draft in September 2017 for an offering in December 2017 could not omit financial information for the six months ended June 30, 2016 and 2017, since a registration statement for such an offering would be required to include financial information for the nine months ended September 30, 2016 and 2017.

Lastly, the guidance confirms that non-EGCs can omit financial information for annual periods that will not be required at the time of public filing. Thus, a non-EGC filing a draft in November 2017 with an anticipated public filing in April 2018 can omit financial information for 2014, since the publicly filed registration statement will include information for 2015, 2016 and 2017.

]]>http://ipo.foleyhoag.com/2017/08/28/sec-staff-clarifies-registration-statement-relief-for-omitting-financial-information/feed/0SEC Increases Registration Feeshttp://ipo.foleyhoag.com/2017/08/25/sec-increases-registration-fees/
http://ipo.foleyhoag.com/2017/08/25/sec-increases-registration-fees/#respondFri, 25 Aug 2017 14:27:58 +0000http://ipothenwhat.foleyhoag.wpengine.com/?p=108On October 1, 2017, fees for registration statements under the Securities Act will increase to $124.50 per million from $115.90 per million, a 7% increase. The new fee rate will also apply to proxy statements for mergers and acquisitions and tender offer statements.

Issuers who anticipate a near-term need to file a registration statement, such as a shelf registration statement on Form S-3, should consider whether the filing can be made before the higher fee rate kicks in.… More

]]>On October 1, 2017, fees for registration statements under the Securities Act will increase to $124.50 per million from $115.90 per million, a 7% increase. The new fee rate will also apply to proxy statements for mergers and acquisitions and tender offer statements.

Issuers who anticipate a near-term need to file a registration statement, such as a shelf registration statement on Form S-3, should consider whether the filing can be made before the higher fee rate kicks in.

]]>http://ipo.foleyhoag.com/2017/08/25/sec-increases-registration-fees/feed/0SEC Report on ICOs and Token Sales – “If It Sounds Too Good to be True…”http://ipo.foleyhoag.com/2017/08/10/sec-report-on-icos-and-token-sales-if-it-sounds-too-good-to-be-true/
http://ipo.foleyhoag.com/2017/08/10/sec-report-on-icos-and-token-sales-if-it-sounds-too-good-to-be-true/#respondThu, 10 Aug 2017 19:09:19 +0000http://ipothenwhat.foleyhoag.wpengine.com/?p=104On July 25, 2017, the SEC issued an investigative report to advise those who have used or may consider using a virtual organization or capital raising entity that uses distributed ledger or blockchain technology to facilitate capital raising that these activities are subject to U.S. federal securities laws. The SEC also released an investor bulletin to educate and caution potential investors about this new and growing type of capital raising.… More]]>On July 25, 2017, the SEC issued an investigative report to advise those who have used or may consider using a virtual organization or capital raising entity that uses distributed ledger or blockchain technology to facilitate capital raising that these activities are subject to U.S. federal securities laws. The SEC also released an investor bulletin to educate and caution potential investors about this new and growing type of capital raising.

Although the SEC determined not to pursue an enforcement action in the instant case, the report concluded that the tokens at issue in the investigation were securities and that, therefore, the offering and sale of the tokens was subject to U.S. federal securities laws. This report confirms that the SEC will look to the facts and circumstances of transactions to determine whether they constitute offerings of securities subject to U.S. federal securities laws. As such, it has broad implications for market participants that assumed sales of digital assets by “virtual” organizations (such as “Initial Coin Offerings” or “Token Sales”) were outside the scope of these laws.